São Paulo – According to the latest assessment of Sudan by the International Monetary Fund (IMF), the country’s budget deficit is growing and the external current account deficit has widened to 10.8% of the Gross Domestic Product (GDP), which was down 2.6% in 2012. The main reason for the country’s deteriorating economic performance is the split that led to the creation, in 2011, of South Sudan. The latter kept Sudan’s main source of wealth: petroleum. According to a report released this Friday (4th) by the Fund, the country may benefit from increased cooperation with the other side of the border.
Early in September, the presidents of Sudan, Omar Al Bashir, and South Sudan, Salva Kiir, reached an oil exploration agreement. As much as 75% of Sudan’s oil reserves are in South Sudanese territory. However, South Sudan has no ports, and therefore needs to use Sudan’s pipelines to ship out production via the Red Sea. Sudan was threatening to block the pipelines, but the agreement between the two countries prevented that from happening. Oil is a leading source of revenues for the two countries. Sudan and South Sudan sustain other trade agreements as well.
According to IMF figures, the Sudanese oil industry’s GDP was down 3.9% in 2010, down 36% in 2011, down 62.4% in 2012, and should be up 46.9% this year. The country’s real GDP, which includes the non-oil sector, should be up 4.1% this year, after a 2.6% decline in 2012. Despite the growth forecast, the country’s economic scenario is “challenging,” according to the IMF.
In addition to reducing its budget and external deficits, according to the Fund’s report, Sudan must also pay and negotiate its various outstanding debts with international creditors, as well as cut inflation, which reached 44.4% in 2012 and then dropped by 22.9% from January to August this year. The IMF believes inflation should see a slight decline in the next few months, although prices should keep growing at “double-digit” rates.
The IMF believes the “immediate priority” for Sudanese authorities should be to correct fiscal imbalances. To that end, the Fund suggests cutting spending, reducing transfers to states, withdrawing subsidies, and raising tax collection. The solution for the country’s debt, according to the Fund, lies in working in tandem with South Sudan to convince creditors to relieve some of its debt.
These measures, according to the IMF, are needed in order for Sudan to grow in sustained fashion, reduce poverty among its population, and create jobs. The Fund forecasts that provided that Sudan implements measures to promote economic growth, the country’s budget deficit should narrow in the coming two years, due to oil transit fees and the transitional financial arrangement between Sudan and South Sudan, which is expected to widen in subsequent years. However, these measures are subject to political instability and regional conflicts.
*Translated by Gabriel Pomerancblum
